India continues disincentives to branch banking

A leading Singapore bank raises the issue that some Indian taxes restrict the growth of branch banking in India.

Piyush Gupta, Chief Executive Officer of DBS Bank Ltd, said India’s high stamp duty and capital gains tax tend to make it unviable for foreign banks to open wholly-owned subsidiaries.

Gupta said DBS plans to establish subsidiaries in emerging markets such as India but a delay in final guidelines from the Reserve Bank of India (RBI) is preventing them from doing so.

The guidelines have to do with exempting foreign banks considered “systemically important” to India from an existing law that orders foreign banks pay 20-30% of the current market value of their assets as capital gains and stamp duty while transferring branches to a new legal entity.

Foreign banks and the RBI have both asked the Ministry of Finance to ease “subsidiarization” by exempting foreign banks who want to open subsidiaries in India. RBI wants foreign banks to operate branches through a subsidiary in order to buffer the liquidity of their parent banks.

“RBI has to first come with the final guidelines, but there has been some to and fro between them and the ministry of finance on stamp duty and capital gains,” Gupta said.

“RBI is open to make an exception for us, but it is still under discussion at the finance ministry. I met the RBI governor recently and he was optimistic that the issue will be sorted out by this budget or later.”

Based in Singapore, DBS Bank is the largest bank in Southeast Asia by assets and is among the largest banks in Asia. It posted an income of S$10 billion in 2010.

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